House of Cards (32 page)

Compounding Lewis's stress over his bet on the railroad bonds was the family's decision, in 1944, to buy a huge new apartment at 778 Park Avenue for the princely sum of $20,000. The family had been renting two apartments at 1192 Park Avenue, one facing the armory to the north and the other facing Park Avenue. Lewis made the purchase at the insistence of his wife, who felt its location and size were far more appropriate for her improving status. “It's like eighteen rooms and six master bedrooms,” Sandy said. “Everybody's got a bathroom. This is a hell of an apartment. But this was also a disaster. He was coming home every night so depressed about the world, about his critical decision to buy these rail bonds. You couldn't sell them. This was it. Either this strategy was going to work or they weren't going very far at all.”

Lewis had to move the war bonds. “This man would be gone for two weeks at a time in every single city and every single bank to get control of their portfolios and move the bonds around,” Sandy Lewis said. “He was known throughout the United States. If he could do this, he could support the rail bonds. This was all about ‘I'll help you. I'll rearrange your portfolio.' He could run a yield curve in his sleep. All so that he could earn enough revenue to support this huge bet that he had made.”

Bear Stearns would have been bankrupt if Lewis's bet had failed. “Gone,” Sandy said. “Out of business. No question about it. They weren't an underwriting firm. They weren't a mergers firm. They didn't have any other business.”

After the United States and its allies won the war, the victory party played out exactly the way Cy Lewis had hoped. “The government decided to put the railroads back on their feet,” his son explained. “Things got awful good awful fast. All of a sudden, these bonds rose to par. And you got par plus accrued interest from back when. All I can say is things got different. Holy shit. We got better cars … golf clubs. The apartment was well furnished. All kinds of things started happening. We had parties. I could see it all over the place. There were six servants. There was a chauffeur.”

By January 1945, with the Allies' victory in Europe looking more likely, Bear Stearns had started adding to its inventory of railroad bonds by buying some directly from the Reconstruction Finance Corporation at par (100¢ on the dollar) and slightly above. By February 1946, with the Allied victory sealed, railroad bonds were fetching record high prices, with a yield only slightly higher than U.S. Treasury securities—the ultimate sign that the health of the industry had improved dramatically and Lewis's bet had paid off in spades.

Flush with the extraordinary success of his railroad bet, Lewis quickly consolidated his power at Bear Stearns. But to do that, he first had to elbow out of the way his partner Teddy Low. Low was a member of the Confrérie des Chevaliers du Tastevin, a highly select group of oenophiles that devoted themselves to the wines of Bordeaux. Low, the dapper public face of the firm, always resented Lewis's intellectual prowess. Low was also “pompous, dense, stiff, a snob, and insecure,” according to Sandy Lewis.

Teddy Low believed longevity should be the key criterion for selecting the firm's managing partner. “The fact that my dad built the firm up did not enter into Low's thinking,” Sandy Lewis continued. “But my dad had a different view. When Low [who had served in the naval reserve] came back from the war, he attempted to take the firm back where it was and stop all principal trading. [Founding partners] Harold C. Mayer and Joe Bear said, ‘Are you crazy?' And that was the end of Teddy Low's authority in that firm.”

I
N THE WAKE
of his success betting on the railroad bonds and after he consolidated his power at the firm, Lewis needed an encore. Bear Stearns did, too. So the partners focused on other event-driven deals, such as merger arbitrage (betting on whether an announced merger would happen or not) and taking controlling equity stakes in companies. In effect, after World War II, Bear Stearns was at the starting line of what has come to be known as the private equity business. “What you're looking at,” Sandy Lewis said, “is how does the firm make money with money, the firm's money?” This became his father's focus after the war. He wanted to climb the ladder of success and push his firm into the limelight. But he still had to pay occasional homage to the founding partners. “Mayer's on the floor and he has to call Mayer to get approval on everything,” his son continued. “Mayer was kind of a necessary nuisance.”

As wealthy as the Lewises were, Cy Lewis spent much time worrying about everything, though he communicated very little to his family. Cy Lewis's growing depression began to cast a pall over the household. “My mother got the feeling from her husband that things weren't good,” Sandy said. “His personality was always, ‘I'm worried.' This is a guy who's very concerned about building things. He carries all the worries of the whole place on his shoulders.”

And his words and actions could have powerful effects on his partners. For instance, Sandy Lewis recalled how his father devastated his partner David Finkle, whom Cy had recruited to Bear Stearns from Salomon Brothers and admired greatly. “David Finkle would come into the
office with a new tie on,” Sandy recalled. “My father would look at the tie and say, ‘Where the fuck did you get that tie? Ah, come on, what kind of a tie is that? For Christ's sake, would you guys look at this tie? What did he spend on
that
tie?’” Lewis's supposedly friendly razzing caused Finkle to retreat to the bathroom and burst into tears. “Finkle was a very tiny little guy. Here's this massive Cy Lewis with his great presence and great gravitas. Cy Lewis walks in the room. Everybody sits up a little straighter. David Finkle walks in the room. Nobody notices he came in.” By this time, all the main players at Bear Stearns had specific roles: the WASPy affectations of Teddy Low, the showbiz demeanor of Don Lillis, the avuncular paternalism of Harold C. Mayer, the outsized intimidation of Cy Lewis. Lewis wanted to push his firm into the limelight—and climb the ladder of success himself.

A
CE

nto this small second-tier Wall Street firm in 1949 came Alan C. Greenberg, a tough-minded midwestern Jew with a gambler's instinct and a serious itch to get rich. He was born in Wichita, Kansas, in 1928. He was the grandson of Russian immigrants who supposedly arrived “on these shores with nothing but dreams of America.” He had great admiration for them. “Getting from Russia to America without any money or profession or speaking the language, that took a lot of courage,” he explained. “And they had it.” When Greenberg was six years old, his father moved the family to the upper-middle-class neighborhood of Crown Heights in Oklahoma City, Oklahoma. Theodore Greenberg started Streets, a clothing store, on West Main Street in Oklahoma City, in 1930. The next year, the store was one of the first in the country to offer customer charge accounts. Eventually, Streets grew to thirteen stores in the state of Oklahoma, with around $30 million in revenue.

Alan Greenberg was a precocious little kid. “He was a terrific boy, never a problem at all,” his mother, Esther, said in 2000, when she was ninety-three years old. (She lived to be ninety-eight.) “But he was also a challenge. It's not easy to raise a boy when he's smarter than his mother…. After school, we would spend hours at home building model airplanes
and, once, built a motor that he attached to his bicycle to power him to school.” He also saw a performance of Blackstone the Magician when he was eight years old and then became hooked on magic and card tricks. This dedication to a variety of hobbies—whether magic tricks, dog training, yo-yos, bridge, or big-game hunting in Africa using a bow and arrow— started in childhood. He always prided himself on being able to leave the office at the end of the day and not worry about it.

Eventually, at both Harding Junior High School and at Classen High, he would become a standout student who was captivated by all of his classes. He was also a star athlete, although he was only five feet ten on a good day. He had more of a pugilist's density rather than a true athlete's sleekness. But he made it work all the same. He was a blue-ribbon sprinter. He was also a star halfback on the Classen High football team that had an 11-1-1 record and defeated Tulsa Central to win the first official state high school championship.

He graduated from high school during World War II, and with so many young men in the army, his football skills were sufficiently good that he received a full scholarship to play football at the University of Oklahoma, eighteen miles from home. Freshmen were allowed to play on the varsity during World War II and Greenberg started the first two games of the 1945 season. But in the second game, against Nebraska, he ruptured a disc in his back, and his intercollegiate athletic days were over. At the end of the school year, he decided he wanted to “go East” to school. He transferred to the University of Missouri, Columbia, five hundred miles from home. He majored in business. With his cousin, Ronnie Greenberg, he joined the Zeta Beta Tau fraternity. They would also go camping, hunting, and fishing together when they could. He claimed to be only a B student who focused on sports and girls, “though not necessarily in that order.” He said he majored in “getting out.”

It was in pursuit of co-eds that Greenberg became known forever-more as “Ace.” At Mizzou, a friend advised him that it would be difficult for him to date women given his obviously Jewish name. “You know, you're not a bad-looking guy,” his friend told him, “but with a name like Alan Greenberg, you're not going to do well at the University of Missouri.” His friend suggested Ace Gainsboro. “I dropped the Gainsboro, but Ace stuck at the University of Missouri and it followed me to New York,” Greenberg said. He also pursued his interest in playing bridge in college. “If he was up until two o'clock, it was because he was playing bridge,” his Mizzou roommate (and future Bear Stearns chief operating officer) Alvin Einbender said.

Although Greenberg used to work sweeping out the family store on
Saturdays growing up, he knew early on that his ambitions were far larger than running a women's clothing chain. He had his sights set on Wall Street. “I just thought it was something I might be good at,” he said in 2004. “I loved playing cards, I loved—shall we say—making bets on things. So I headed to New York. Bet making was illegal at that time, so I didn't have many options.” Greenberg said he took with him some valuable lessons about life he learned from his family. “My father had a tremendous amount of common sense,” he said. “During World War II, a lot of people had cash. I said to my father, ‘How come all these people have cash?' He said, ‘They do business away from the cash register'—because at that time we had price controls…. So I said, ‘Why don't you?' He said, ‘I never want to end up working for my bookkeeper or my secretary.' And I never forgot that.” According to Mark Singer, the
New Yorker
writer who profiled Greenberg in the magazine in 1999 and in whose piece this bit of homespun wisdom first appeared, “That was it, an ostensibly revelatory anecdote that terminated in a business axiom: steal from the tax man and your underlings are liable to blackmail you.”